Equilibrium, Microeconomics

Equilibrium is explained as follows:

Equilibrium is the state in which there are no shortages and surpluses; or we can say that the quantity demanded is equal to the quantity supplied.

Equilibrium price is the price prevailing at the point of intersection of the demand and supply curves; in other words, it is the cost at which the quantity demanded is equal to the quantity supplied.

Equilibrium quantity is the quantity which clears the market; or we can say that it is the quantity at which the quantity demand is equal to quantity supplied.

Algebraic Representation of Equilibrium is given below:

If we have the given demand and supply functions then,

Qd = 100 – 10 P

Qs = 40 + 20 P

In equilibrium, 

Qd = Qs


100 - 10P = 40 + 20P

20P + 10P = 100 - 40

30P = 60

P = 60/30


P = 2

 Putting the value of cost in any of demand and supply equation,

Q = 100 – 10x2 (or 40 + 20x2)

Q = 100 – 20

Q = 80

The equilibrium price we obtain is 2 and the equilibrium quantity is 80.

Equilibrium can shift if any of the following happens:

The Demand Curve Shifts.

The Supply Curve Shifts.

Both the curves Shift.

The symbol “Æ” or “Ç” shows rise and the symbol “Å” and “È” shows a reduction while the symbol “~” shows that the particular thing remains same.

Posted Date: 7/19/2012 3:34:12 AM | Location : United States

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